CPD: Ethics, informed consent and the Statement of Advice


What is the intersection between the Code of Ethics and the SOA and how is the issue of informed consent central to meeting the requirements of both?

In today’s complex financial landscape, seeking guidance from a professional financial adviser has become increasingly important. This article, proudly sponsored by GSMF, examines the relationship between an SOA, informed consent and ethical advice practices.

Informed consent refers to the explicit agreement or permission provided by a client after receiving clear, accurate, and sufficient information regarding the financial advice they are about to receive or act upon. It is an essential component of the client-adviser relationship and ensures that all clients understand the implications, risks, costs, and benefits associated with the financial products or strategies that are recommend.

This information is generally delivered, wholly or in part, by a well-crafted Statement of Advice (SOA). This forms an integral part of the advice process. A good SOA is a significant tool that not only outlines the recommendations and strategies proposed by a financial adviser, but also ensures transparency, compliance and importantly, client understanding.

To obtain informed consent, financial advisers must provide clients with all relevant information necessary for making an informed decision. This includes details about investments and financial products, potential conflicts of interest, fees and charges, the nature of the financial advice being provided, and any potential risks associated with the recommended strategy. Advisers should present this information in a clear, concise and effective manner, tailored to the client’s level of financial literacy.

In addition to obtaining informed consent, the SOA can play a pivotal role in establishing trust between adviser and client, help to manage expectations and allow informed financial decisions that align with each client’s unique goals and circumstances. In our ever-evolving industry, a comprehensive and accurate SOA is the cornerstone of a successful and ethical financial advice process.

While the eventual implementation of recommendations from the Quality of Advice Review (QAR) may result in changes to the SOA – or its eventual replacement – the importance of a cornerstone document to ensure clients are given enough information for them to understand the personal advice provided is likely to be retained.

The importance of a quality SOA

The Corporations Act 2001 mandates that advisers must provide an SOA to their clients, outlining the advice being provided, the basis for that advice, and the risks and benefits associated with it. Specifically, section 947B outlines the main requirements of an SOA. This regulatory requirement helps to protect consumers and ensure that they have a clear understanding of the recommendations being presented to them.

It is designed to be a comprehensive document that details the recommendations, strategies and considerations provided by a financial adviser to their clients and the quality of an SOA lies in is its ability to foster transparency and client understanding. This is important to ensure that your clients can make informed financial decisions.

The SOA also plays an important role in establishing trust between you and your client, as it provides an opportunity to demonstrates your professionalism, expertise and commitment to acting in the best interests of your clients. This transparency builds confidence and allows your client to assess your advice, seek clarification on any points and have their questions answered.

The SOA can also be a tool for managing expectations. It can help your clients to have realistic expectations about expected outcomes, the costs, risks and timeframes associated with the proposed financial strategies. It ensures clients can make well-informed decisions that align with and risk tolerance and will meet their financial objectives, all of which is essential to obtain informed consent.

Importantly, the SOA provides evidence that you have followed appropriate processes and due diligence. It demonstrates your compliance with legal obligations, professional standards and your duty of care to your clients.

Many of the words used to describe the important role of the SOA are words that you will also find in the Code of Ethics (Code). This is no coincidence – to act in each client’s best interests, to ensure each and every client understands the advice you provide and be sure they understand the fees charged, likely risks and expected returns increases the likelihood of your meeting your ethical obligations.

The following table illustrates how providing clients with an inadequate SOA could potentially breach each of the twelve standards that comprise the Code.

To further examine the interplay between the SOA and the Code of Ethics, we’re going to explore how AFCA assesses the adequacy of SOAs in advice and use this to further illustrate how an inadequate SOA may result in a breach of one or more ethical standards.

The issue of informed consent

In May 2022, AFCA published a paper[1] clearly outlining how it assesses the adequacy of SOAs when examining consumer complaints. This assessment, along with the factors AFCA considers, provide advisers with practical guidance in relation to the preparation of SOAs.

The question of whether a retail client has given their informed consent to take up the financial firm’s advice is a critical issue in most financial advice complaints handled by AFCA. Where this issue is raised, AFCA’s representatives will examine the disclosures made by the financial firm to the client – the SOA is considered to be a ‘key document’ for this assessment.

If the information in the SOA is not ‘clear, concise and effective’, then AFCA might find that the client did not understand the advice and the financial firm (and adviser) had failed to secure the client’s informed consent to take up the advice.

When looking at whether information in an SOA is clear, concise and effective, AFCA considers whether the information:

  • is expressed in plain language
  • is brief yet comprehensive
  • promotes understanding of the adviser’s recommendations.

Informed consent and the provision of information falls into the ‘Client Care’ section of the twelve standards that comprise the Code.

In situations where AFCA finds an SOA has not provided clear, concise and effective information – and by extension, questions informed consent –standard four is likely to have been breached.

Further, the notion of clear, concise and effective information also permeates standard five, where you must be satisfied, and have grounds for that satisfaction, that your client understands all aspects of the advice you provided.

When AFCA consider whether or not a client’s informed consent to take up advice has been obtained, its team will examine the SOA provided to the client and consider the following questions:

Did the financial firm consider the client’s experience, language skills, literacy and numeracy?

Financial firms that make a reasonable assessment of a client’s experience, language skills, literacy and numeracy are much more likely to prepare an SOA that the client will understand and less likely to be found to have breached their duty to secure the client’s informed consent to take up the advice. They are also more likely to have upheld their ethical responsibilities under standards four and five.

Furthermore, an SOA that incorporates this reasonable assessment is more likely to deliver advice that is in the client’s best interests, which underpins both standards two and five, and that’s within the legal guidelines provided in the Corporations Act (2001), thereby meeting standard one.

Did the SOA use language the client was likely to understand, or did it use legal, industry or technical language?

An SOA which does not use language the client is likely to understand cannot, in AFCA’s view, be effective. However, it is important to note that the question is an objective one. AFCA does not consider whether the client subjectively understood the information in the SOA; the team member only needs to be satisfied that the client was likely to understand the language used in the SOA, assessed objectively, having regard to their experience, language skills, literacy and numeracy.

Further, AFCA considers that SOAs full of legal, industry or technical language are less likely to be ‘clear, concise and effective’, particularly if the client is unfamiliar with this language. If the use of such language in an SOA is unavoidable, the concepts must also be accurately explained in plain English.

Without being able to demonstrate the client had ‘proper understanding’, it is hard to build a case that the advice was aligned with standards four (informed consent) and five (client understanding).

Was the information in the SOA in a logical sequence?

SOAs which are not logically set out are not considered to be clear or effective because they tend to confuse clients.

In broad terms, AFCA requires SOAs to have:

  • a beginning – the client’s objectives, available assets, timeframe and risk tolerance
  • a middle – an analysis of strategies and/or products that are likely to meet the client’s objectives given their available assets, timeframe and risk tolerance
  • an end – an explanation of a recommended strategy and/or products that are likely to achieve the client’s objectives given their available assets, timeframe and risk tolerance.

Standard five requires advice and financial product recommendations that you give to a client to be in their best interests and appropriate to their individual circumstances; by clearly and logically presenting the information as outlined, you are more likely to meet this ethical standard.

Did the SOA identify the client’s objectives in quantitative terms and explain how the advice would achieve those objectives?

An SOA that identifies the client’s objectives in quantitative terms (e.g. ‘to retire at age 60 with sufficient savings to generate a retirement income of $40,000 a year’) is much more likely to be effective than an SOA that does not identify the client’s objectives with such attention to detail (e.g. ‘to retire at age 60’).

According to AFCA, the latter type of SOA is unlikely to contain any meaningful analysis of, or conclusions about, the strategies and/or products that will achieve the client’s objectives. Such an SOA is more likely to risk breaching standards four and five dealing with informed consent and understanding. It may also be more difficult to make the case for acting in a client’s best interests, which risks breaching standards two and five.

When it comes to a recommended investment strategy, you must be able to demonstrate that you have an in-depth knowledge of the financial products and services you are recommending to clients. This will ensure you meet standards nine and ten of the code.

Does the SOA resolve any internal conflicts?

An SOA that features internal inconsistencies is unlikely to be clear. If, for example, the client wants only a low level of risk but wants to retire with an income that would only be achieved by taking a greater level of risk, the resolution of this conflict must be explained in the SOA.

For example, the client may agree to take more risk, put more of their current income towards retirement or agree to the objective of retiring on a lesser income.

A failure to detail such internal conflicts could bring standard six into focus; any sort of risk-return trade off is likely to impact the longer-term effects of the recommended strategy. To avoid breaching this standard, it is important to detail how those conflicts are resolved.

Does the SOA contain irrelevant information?

In AFCA’s experience, clients are more likely to be confused by SOAs that contain irrelevant information. By way of example, if a client has only sought advice about investment products and does not wish to borrow to fund the proposed investment, the SOA need not include information about margin loans and insurance products. If the SOA includes extraneous information, it is less likely to be clear, concise and effective.

Is the SOA a template document?

Template documents can be very useful, particularly in a busy advice practice. However, it’s important to tailor the language used so it’s appropriate to the client’s level of financial literacy and delete any irrelevant information. In AFCA’s experience, a template SOA is more likely to include language the client will not understand, legal, industry or technical language and irrelevant information, none of which is helpful to the client.

Case Studies

The case studies have been drawn from ASIC or AFCA (or its predecessor organisation), although names of people, places and financial firms have been changed. For each, potential breaches of the Code of Ethics are identified.

Case study one: Unclear and inappropriate financial advice

The complainant is the corporate trustee of a Self-Managed Superannuation Fund (SMSF), represented by one of its directors, Deborah. Both Deborah and the other trustees were clients of Graham, a financial adviser with GG Advice.

Deborah claims she received inappropriate advice from Graham. His advice to establish the SMSF, rollover her pre-existing defined benefit fund and purchase an investment property using a gearing strategy was not, she claimed, appropriate. The financial firm claims the investment strategy was driven by Deborah and she was fully aware of the risks of the SMSF’s investment strategy.

The SOA indicated that the complainant’s nominated objective was:

“I have an investment property in mind which I would like to know if I can buy it using my super”.

However, the fact find’s goal and objectives, scope of advice, risk profile and client declaration all remained blank. There was no evidence provided as to how Graham reached the conclusion that the complainant’s objective was as indicated. AFCA’s decision maker was not satisfied that the information outlined in the SOA about the complainant’s objective or risk profile reflected the complainant’s actual circumstances at the time.

Accordingly, GG Advice was required to reimburse $27,722.34 to the complainant’s SMSF plus interest, and to contribute to the winding up costs of the SMSF.

Using the information provided in this case study, Graham potentially breached the following standards of the Code:

Case study two: An inadequate SOA and inappropriate advice

The complainants, Anthea and Peter, claim to have received inappropriate financial advice from Scott, an authorised representative of the financial firm ACME Financial Advice. AFCA upheld the complaint, finding that Scott had:

  • failed to identify the couple’s objectives, financial situation and needs and did not conduct a reasonable investigation into the relevant financial products
  • the fact find and SOA were not completed.

It followed then, that Scott did not have a reasonable basis to recommend a 70% Growth strategy and he failed to properly advise on the risks of the strategy.

The adviser in this instance failed to collect valid data via a fact find, research, form recommendations based on the best interests duty and formalise the recommendations via a SOA. ACME was required to pay Anthea and Peter an undisclosed amount.

Using the information provided in this case study, Scott potentially breached quite a number of the Code’s standards, including:

Case study three: Informed consent

Julia, 68, was recently widowed. Her late husband, William, had managed the family finances. The manager in her local bank branch noticed she was rolling over large amounts in term deposits each month and recommended she see a financial planner based at the branch. Julia agrees to see Gloria, the branch’s Senior Financial Planner, for advice regarding her late husband’s estate.

Gloria made a series of recommendations focused on restructuring assets and creating an appropriate income stream to meet Julia’s lifestyle needs.

Julia, who Gloria knows has no experience in financial matters, said she understood the recommendations and was happy to proceed.

However, Gloria was not convinced Julia really understood her advice. She explained that it is important for Julia to fully understand the advice and the implications for her before making the decision to proceed.

Gloria offered to take Julia through an education program designed to assist her to understand the financial concepts involved in the recommendations. This was followed up by stepping through the SOA, explaining each element along the way. By the end of their discussions, Gloria was confident Julia understood her recommendations and was able to provide her informed consent to proceed.

By taking care to ensure Julia sufficiently understood the recommendations before providing her consent to proceed meant Gloria met her ethical obligations. Had she not taken those steps and accepted, at face value Julia’s assertion that she understood the recommendations, she could have breached several of the standards, including:

Case study four: Templated SOA

When advising his clients, Christopher uses a template SOA document provided by his licensee. The document is long and contains material and standard risk information relating to a range of advice topics. At his licensee’s insistence, Christopher is only able to minimally tailor this document for individual clients and never removes generic information that is not relevant.

An AFCA investigation following an advice complaint found the resulting SOA to be unnecessarily long and to include complex language and concepts that compromise the client’s ability to understand the advice. Further, it failed to give clear and simple explanations of the:

  • implications of the advice or recommendation
  • benefits
  • The costs
  • risks and how the adviser recommends they be managed.

In addition, AFCA found the SOA included technical language the client was unlikely to understand, as well as irrelevant information – neither of which was likely to enhance client understanding.

By using a templated SOA and not tailoring it to each client runs the risk of breaching a number of ethical standards, including:

The Statement of Advice is critically important in the context of the provision of ethical financial advice. It serves as a vital document that promotes transparency, compliance, client understanding and trust in the financial planning process. By providing a comprehensive written record of recommendations, risks and benefits, the SOA empowers individuals to make informed decisions that align with their goals and circumstances. The SOA is also a critical element to obtain informed consent; this in turn promotes transparency, consumer protection, and the overall integrity of the financial advice profession.



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[1]  The AFCA Approach to adequacy of statements of advice, May 2022

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